Surprise 1099K from Paypal in Illinois. Do I need to file?

[helpfromillinois]

Hi. Thanks in advance for any help. I received a surprise 1099K for selling $4K (103 transactions) worth of stuff. This was just household stuff I had laying around. We could not have a garage sale due to Covid. Does the 1099K have to be filed if I didn't make a profit? I am on Medicaid and am worried this will mess up my insurance. I don't have receipts as most of the stuff was older or bought by myself from garage sales in the past. Clothes and electronics parts mainly. I can't seem to find a definitive answer for the state of Illinois. Please help!

[Mike9241]

you need to contact Paypal and indicate these were not business sales.  if you don't and don't report the sales (which aren't really sales of business inventory/assets) you will get a notice from the IRS and a bill because a copy of the form goes to them. it presumes it is for sales by a business and thus reportable and taxable 

Make corrections to your form or reporting information if the amount is wrong. It's possible that your 1099-K may reflect more than you earned under certain circumstances. For example, you may have shared a credit card terminal with another business owner, resulting in a 1099-K that reflects their income as well as yours. If you believe the income reflected on the form is wrong, you can request a corrected form or update your business information, depending on what caused the error. Here are the potential issues that may occur:[5]
The 1099-K is in your name instead of your business name
You shared your credit card terminal with another person or business
You bought or sold your business during the year
You changed your business structure, such as going from sole-proprietorship to partnership
You gave debit card customers cash back
You received income from multiple income streams

[helpfromillinois]

Everything I've read, is that Paypal will be no help. Just advises to see a CPA. The 1099k is in my name as I am not a business. Just clearing stuff out before a move. Is there any way to just zero it out if I do file? I don't mind paying the taxes, I'm just concerned about my medicaid insurance.

[Hal_Al]

See

https://ttlc.intuit.com/community/taxes/discussion/i-sold-some-personal-items-on-ebay-and-received-a...

[helpfromillinois]

Thank you. There was some good info there. I'm still not sure whether or not I have to file. I don't have records of when the stuff was bought. It was just household stuff we had laying around.

[DawnC]

Most of the time, personally-owned stuff like cars, appliances, clothing, furniture, and other household items decrease in value after the initial purchase. If you later sell them, it's almost always for less than what you paid, so there's no gain to report.   You would only need to report the income if the sales of the personal items resulted in a gain OR if you were selling items with the intention of making profit.   Keep records of the items you sold in case you receive an inquiry so you will be able to explain why you did not report the form.  

Do I have to report personal items that I sold?

[helpfromillinois]

Thank you very much. What if I don't have records of the items sold? Most of them were in the summer. I never kept the receipts or anything.

[Irene2805]

Can you go on the PayPal website to see a list of your transactions?  However, as the posters have stated above, since the items were your personally owned things, you won't have to report the income on your return.

[davidvillagomez0]

I’m in the same situation did you find a solution? How did you handle this?

[PattiF]

Here is some information about reporting sales that are the equivalent of online yard sales where you did not make a profit.  I prefer Option 2.

If your Form 1099-K is for personal items sold, similar to having a garage sale, and you were not in a trade or business, the IRS allows you to also deduct the related expenses for the sale up to the amount of the sale.

Otherwise, Form 1099-K must be included in the self-employed section of the return. In the self-employed section, negative income cannot be reported. Self-employed persons must use the rebates option under income or report any offsets as miscellaneous expense.

If you do not need the self-employment section, you have two options to report Form 10999-K in TurboTax.

Both following options will report Form 1099-K and also zero it out on your return. This will mean you appropriately pay -0- tax on the non self-employed income.

For reporting Form 1009-K for personal items sold not associated with a trade or business, you have two options:

• Option 1 in TurboTax Premier or higher: reporting Form 1099-K as investment income
  1. Go to the search box and enter Investment Sales
  2. Select Jump to Investment Sales
  3. Select Other at the next screen, OK, what type of investments did you sell? and click Continue
  4. At Tell us more about this sale, enter in the name, such as Form 1099-K eBay Personal Property Sales and the Payer's EIN and click Continue
  5. At Now we'll walk you through entering your sale details, under the first dropdown menu, What type of investment did you sell? Select Personal Items
  6. Answer How did you receive this investment with an option from the dropdown menu.
  7. Enter the Description. If you are uncertain what date you purchased the goods, select Something other than a date so that TurboTax will enter Various
  8. Next, enter your Sale Proceeds and an equal amount for the Total Amount Paid and click Continue. The description for the cost should include Cost of Personal Property
  9. Select None of these apply at Let us know if any of these situations apply to this sale and Continue
  10. Continue through the rest of the prompts 
  11. Select Add another sale to add the next Form received 
       
• Option 2 in TurboTax Deluxe or higher: reporting it via Other Miscellaneous Income is acceptable to the IRS.
  1. From the left menu, go to Federal and select the first tab, Wages & Income
  2. Add more income by scrolling down to the last option, Less Common Income, and Show more
  3. Scroll down to the last option, Miscellaneous Income, 1099-A, 1099-C and Start
  4. Choose the last option, Other reportable income and Start and Yes
  5. Enter the applicable description and amount and Continue
     • First, enter Form 1099-K as received. It is essential that the full amount be entered.
       • For a description, include Form 1099-K and Personal Property Sales
     • Next, in other reportable income also,  enter an adjustment to reflect the cost of these items as an offsetting, negative amount up to the amount of the income.
       • For the cost description, include Form 1099-K and Cost of Personal Property 
       • In other words, if the goods cost you $100 and Form 1099-K was for $10 in sales, the maximum cost allowable would be $10.

[sheldon won]

I have a different case if anyone can help.

I was living Illinois but I moved to California in 2019 while I didn’t change my address in PayPal (so it’s still in Illinois) 

In 2020 I had some sales and used PayPal as cash out method. So I have 18 transactions which is way below California 200 transaction + 20000 gross sales. But it triggered 1099k bc my address was in Illinois.

PayPal corrected my address but yet still send a copy to IRS ( I guess they have to for address correction?) Is it possible for them to revoke the 1099k? Or I have to other choices but pay for the tax now.

[KathrynG3]

Regardless if Form 1099-K is issued, any earned income must be included in the return. 

Form 1099-K is not revocable. However, if this was not for self-employment but was personal property sales, then you can also "back out" the income by reporting the cost of the personal property up to the amount of the sale.

For more information, see: Am I considered self-employed?

@sheldon won

[sheldon won]

thanks for the help! I was selling some shoes only and its not for self employed. Do I have concerns if the gross sales sum up to 15k? I’m on H1b. Where to report the cost of the items to back it out, same section as other income on 1040?

@KathrynG3 

thanks again for the help

[KathrynG3]

The volume of the sales may cause a question about whether this is a trade or business. However, if you received far less than what you originally paid for the personal items, they would be considered the same as selling them at a garage sale. If you collected shoes for sale from various sources, however, this is not going to be considered the same as a garage sale in the eyes of the IRS. It may be considered a hobby. Hobbies are required to report the income and cannot claim expenses. For more information, see: Do I have to report hobby income?

If your Form 1099-K income is not from a trade or business or a hobby, enter Form 1099-K as Less Common Income. Enter the offsetting amount as negative income. To do this in TurboTax, follow these steps:

1. From the left menu, go to Federal and select the first tab, Wages & Income.
2. Add more income by scrolling down to the last option, Less Common Income, and Show more.
3. Scroll down to the last option, Miscellaneous Income, 1099-A, 1099-C and Start.
4. Choose the last option, Other reportable income and Start and Yes.
5. Enter the applicable description and amount and Continue
   • First, enter Form 1099-K as received. It is essential that the full amount be entered.
     • For a description, include Form 1099-K and Personal Property Sales if this is coming from personal items sold similar to selling items at a garage sale.
   • Next, enter an adjustment to reflect the cost of these items as an offsetting, negative amount up to the amount of the income.
     • For the cost description, include Form 1099-K and Cost of Personal Property 
     • In other words, if the goods cost you $100, but Form 1099-K was for $10 in sales, the maximum cost allowable would be $10.

[sheldon won]

Thank u!